Tax system impedes growth: Catherine Livingstone



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Australia’s tax system impacts growth, Business Council of Australia President, Catherine Livingstone has told CEDA’s Economic and Political Overview in Sydney.

 

“Taxation can be either an accelerant or an impediment to economic growth – in our case it is increasingly an impediment,” she said.

“If our tax system is not conducive to people productively engaging in the economy, or businesses investing, innovating and creating jobs – and if it’s compromising the nation’s international competitiveness, then the system is undermining our national business model.” 

On the topic of GST reform being off the table, Ms Livingstone said: “If the GST is not an option in the medium term, we need to find another path through.”

“The Business Council believes that the GST could have been a potential source of funding, with appropriate compensation to ensure low income households would have been no worse off,” she said.

Discussing company tax, Ms Livingstone said lowering the rate would help to foster growth.

“A lower rate of company tax reduces the after tax cost of capital, which lowers the hurdle rate for investments, and leads to an increase in business investments that drive innovation, alongside the productivity growth and job creation which flow from innovation,” she said.

  

Also speaking at the event, Infrastructure Australia Chairman, Mark Birrell said now is the time to implement long-term reform to secure the social and economic benefits from infrastructure.

“Despite recent increases in government spending and increased private sector participation, there is a real gap in the overall quality of Australia’s infrastructure,” he said.

“Australia should be in the top 10 nations globally on infrastructure performance, but we are rarely regarded as even top 20 today.”

Mr Birrell said all governments – Commonwealth and state – need to create long-term infrastructure plans.

“To be effective, this planning should be integrated across different infrastructure sectors and networks, and aligned with broader land use and economic development plans,” he said.

In the Australian Infrastructure Plan, Infrastructure Australia has identified a priority list of investment opportunities that will help build the country’s future.

“For instance, to support our growing capital cities we advocate in the Plan for more high capacity, high frequency public transport services across all models,” he said.

Mr Birrell said it is important funding tasks extend beyond capital investments associated with new infrastructure and include operation costs, maintenance, renewal and disposal.

“If we are to deliver more and better infrastructure to meet our growth potential, we will require more funding and better use of that funding,” he said.

 

Providing an overview of the year ahead in politics, The Australian Financial Review Political Editor, Laura Tingle said it is unlikely the Coalition will win the 2016 election with a significant majority.

“We go into this election with the prospect of it producing continuing uncertainty,” she said.

“The chance is we end up with an increasingly close result which robs the Prime Minister of an electoral mandate or even the possibility or a minority government returning.”

Ms Tingle said whether the Prime Minister opts for a double dissolution or a normal election, his message will be the same: “who do you trust most to handle the economic transition from the resources boom.”

On when the election will happen, Ms Tingle said a double dissolution is likely.

“Bringing the Budget forward by a week would effectively mean announcing the election date.”  

 

Discussing the current economic outlook, Treasury Macroeconomic Group Deputy Secretary, Nigel Ray said global conditions impact on Australia’s outlook.

“As a small open economy, foreign investment, trade and immigration are key to our economic outlook,” he said.

Mr Ray said global growth has struggled to regain momentum following the Global Financial Crisis.

“We cannot rely on a resurgence in the global economy to underwrite our national prosperity,” he said.

On Australia’s relationship with China, Mr Ray said the increasing Chinese demand for services and consumption growth will create opportunities for Australian service exports.

“Through our business liaison program, we are seeing strong interest from Australian businesses in taking advantage of these opportunities,” he said.

Mr Ray said China is part of Australia’s transition away from a mining economy.

“A transition to broader based drivers of growth is underway as we leave behind the investment phase of the mining boom,” he said.

There are opportunities for Australia to grow and prosper despite the mining downturn.

“Understanding and responding to global trends and getting macro and micro policy settings right will be crucial,” he said.

“In the long run, productivity growth will be key in determining our living standards – as each successive IGR (Intergenerational Growth  Report) has shown.”

 

Speaking at the final Economic and Political Overview in the 2016 series, Commonwealth Bank Chief Economist and Managing Director Economics, Michael Blythe said things can change quickly in economic forecasts.

“When we kicked off this CEDA roadshow in Brisbane a couple of weeks ago, iron ore was worth $40 per tonne, today it’s worth $60 a tonne apparently,” he said.

“The Aussie dollar was sitting at 70 cents and going lower and now it’s nearing 75 cents and looks like moving higher.”

On US interest rates, Mr Blythe said despite rises rates are still close to zero.

“Even if we see two or three more rate rises this year, US interest rates will still be very close to zero,” he said.

It has been a long time since rates went up anywhere, he said.

“In fact you’ve got to go back to 2006 in the US to find a rate rise cycle,” he said.